Corporate Social Responsibility
Many companies have statements and initiatives dedicated to helping the environment, donating to charities, bringing awareness to important issues, etc. For example, TOMS, the shoe brand, states on its website “We’ve always been in the business to improve lives” from donating a pair of shoes for each pair bought, to now giving 1/3 of profits to grassroots movements. The effectiveness of these initiatives aside, it gives rise to whether companies have a responsibility toward society.
The debate surrounding this question has been longstanding in the realm of corporate ethics. In 1971, the Committee for Economic Development declared the concept of the “social contract” between businesses and society, spurring the idea of corporate social responsibility (CSR). The social contract is the idea that business functions due to public consent, thus, businesses must contribute more to society than solely providing products/services. The CSR business model is when companies integrate social and environmental concerns into their business operations instead of only considering economic profits. The implementation of this model prioritizes social well-being as well as economic profits. However, opponents to this view, such as Milton Friedman, an American economist, and statistician, claim that the only responsibility that corporations have is to increase profits.
The Freidman Doctrine:
Freidman’s main argument was that a business should always focus on maximizing profits for its shareholders. He said corporate executives are simply employees of the business thus, he has a direct responsibility to his employers or the shareholders of the company to increase profits. By dedicating profits to any other social goal, the corporate executive takes money from shareholders and decides how that money will be spent. This, Freidman believes, is akin to imposing taxes on shareholders and is taxation without representation. He feels the implementation of taxes toward social good should be a government responsibility – not one of corporations.
Criticism of the Friedman Doctrine:
Reading the Friedman Doctrine, one of his most striking claims was the denial that businesses have responsibilities. He states “What does it mean to say that “business” has responsibilities? Only people can have responsibilities” He goes on to explain that corporations are artificial persons and, thus cannot be assigned any moral duties. I see where he is coming from. Yes, indeed, corporations are artificial persons. Friedman claims that only individuals can have a moral responsibility toward society. Using Friedman’s logic, if a company’s production creates negative effects on society, for example, pollution then the responsibility falls on each shareholder who benefits. If individual shareholders hold a portion of the responsibility, how do we decide how to make society whole? It would be unintuitive to separately tax each shareholder based on how much they might have gained from the company’s production. It seems to me an easier way would be to treat the company as a person who has created a negative externality for society and place responsibility on the company.
The actions of a corporation are not a business itself but by those who own the business. However, even as “artificial persons corporations” still take resources from society. They require the time and energy of workers. The negative externalities they produce also affect society. Thus, when businesses operate, they are not separate from society. They shouldn’t be absolved of moral responsibility simply because they are “artificial persons”.
The Friedman doctrine argues that shareholders should be given more value while neglecting society. Even though shareholders are essential for a business to operate, businesses also need the community to be successful. Its success depends on the goodwill from the community to purchase products and services. Therefore, companies and society have mutually beneficial relationships. This is why business has a moral responsibility to the community. Friedman treats corporations as a separate entity that does not affect society. However, the production and sale of goods is dependent on society.
Negative Externalities
Friedman’s position ignores the negative impacts of corporations on society. When corporations produce goods the production process often produces negative social and environmental consequences. Society bears these costs with no benefit. Proponents of CSR, argue that companies participating in CSR are simply balancing the books by giving back to society. Additionally, by adopting cleaner practices companies can reduce the number of negative externalities they create.
Self Interest
Friedman treats engaging in social responsibility as against the goal of increasing profits. However, this is not true. Socially responsible companies are likely to project better images to customers and shareholders who align with company values which can impact their bottom lines. Additionally, customers who know that part of company profits will be dedicated toward causes important to them will pay premium prices for goods.
Engaging in social responsibility can also be used to increase employee engagement. According to Harvard Business School, 70% of employees say they wouldn’t work for a company without a strong purpose. Of those who work at companies with a strong purpose, 90% of employees say they are more motivated and inspired.
Conclusion:
In the realm of corporate ethics, the debate surrounding the social responsibility of businesses has been a longstanding and contentious one. At the forefront of this discourse is the influential economist Milton Friedman, who famously argued that the only social responsibility of a business is to increase its profits. While Friedman's perspective holds weight, it is essential to explore the counterarguments that advocate for a more comprehensive approach to corporate social responsibility (CSR).
Sources
https://2012books.lardbucket.org/books/business-ethics/s17-03-should-corporations-have-socia.html
A Feidman doctrine – The Social Responsibility of Business is to Increase its profits (Milton Freidman 1970)